HFT formula

miermiermiermier
in CIA.Accting

For 2016 Spring 26b), if we are given current and prior year MV & AV, NI (HFT) = coupon + change in MV;
For 2016 Fall 13a), if we are given only current year MV & AV, NI (HFT) = coupon + (MV - AV).

I don't understand why it's different? Shouldn't the formula be consistent no matter what info we are given?

Comments

  • grahamgraham
    edited February 2019

    Yes, I agree. It shouldn't depend on what data you're given. That's why there has been so much confusion over these questions. I just added a box with an explanation in the wiki article that I hope goes some way to resolving the issue in a more satisfactory way. Here's the link:

    http://www.battleactsmain.ca/wiki6c/CIA.Accting#2016.Fall_.2313ac

    Basically, it looks like the method for the 2016.Fall and 2013.Fall, where you're only given the current year's data, is an approximation to the method used for 2016.Spring.

    Note that in 2016.Fall and 2013.Fall, the question specifically states that the companies have only been in existence for 1 year, so obviously we can only get current year data. The company in 2016.Spring, however, has been in existence for at least 2 years, so we have the luxury of the prior year's data as well.

    The part I added in the wiki article is the chain of reasoning that I think may resolve the differences in the formulas between all these questions.

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